Lion Brewery says cheers to tax cuts
Mr. Suresh Shah.
The Lion Brewery (Ceylon) PLC saw its volume bouncing back with better tax policies, after the unfair tax hike it faced four years ago.
The company is just recovering from the 40 per cent volume drop it saw during 2015 onwards when beer excise duties were increased 70 per cent.
In both mild and strong beers, prices were adjusted in November 2017 to reflect the then excise tax structure. However, with the March 2019 budget, prices once again moved upward somewhat as beer taxes were increased by 12.5 per cent.
The conservative and impractical way of approaching taxation for alcohol by the government resulting in price hikes didn’t only harm the company bottom line, but affected consumers at large as they shifted to hard alcohol – both legal and illegal. Lion Brewery CEO, Suresh Shah agrees noting that consumers will seek other avenues when policies on orthodox approaches are imposed on ‘clamping down’ the industry.
In an interview with the Business Times, he noted that there are many other ‘better’ ways to look at regulating alcohol. In a 64,000 km landmass that is Sri Lanka, there are only 28,000 licenced liquor stores.”So on average one liquor store serves 22 km. It’s a given that no one will go 22 km to find alcohol. What eventually happens is that they turn to illicit alcohol,” he noted.
The company’s volumes have been backed by the increase in tourism numbers, apart from the change in taxation. Now Lion Brewery exports two containers a day and has 23 export markets.
Mr. Shah noted that despite the volumes returning, the company’s bottle to can composition won’t change significantly. Nor will they look at immediate expansion.”Depending on the demand we will increase capacity as we go along,” Mr. Shah said explaining that this year will be a year of consolidation for the company.
He also stressed that investment has to be backed by consistent policy. “Policies must create an environment to invest. A company will invest if it gets a return.” He further noted that now investment is not backed by consistent policy which is why there is not much economic growth.
He also said the notion that ‘the government is helping the private sector’ is not true. “It’s actually about assisting the private sector to help the country by creating jobs, new investments, etc.” In this light policy should revolve around ease of doing business for the private sector and reducing their cost of capital -all the while getting them into a positive cycle circle, he added.
He credits the efforts in getting the Singapore Free Trade Agreement (FTA) through. “We are a small economy. There is only so much we can expand. We need to take our businesses overseas. They need to go beyond our shores. So tools like the FTAs to India, China, etc help immensely.”
He further noted that from a 21 million people market to a 1.3 billion people market through the Indian FTA will open unimaginable opportunities. “The Government should re-focus its entire approach to trade. The thinking is good but the implementation is slow. And the liberalisation process is slow mostly owing to politics.”
Mr. Shah highlighted the importance of encouraging firms to export while facilitating the ease of doing business in this country. He also added the public sector needs a wakeup call and must shift its focus from regulating to facilitating. They must appreciate the role played by economic growth in improving the lives of people. He noted that Sri Lanka doesn’t have strong institutions that safeguard and serve people and other institutions at large. Politicians too take advantage of the lack of strong institutions to bully the private sector. He added that the private sector needs to be more united in order to battle these issues.
“We are 22 km away from what will be the world’s second largest economy, we have the busiest sea lane 10 nautical miles from our southern border, we have fertile land and we are a tourism haven. We have so much potential to grow and I hope that potential is realised sooner rather than later.”